Washington is moving to restrict U.S.-China capital flows. But there’s a trillion-dollar reason why this can’t go on forever.
Capital — accumulated money — is like water flowing down a hill. You can divert it but it often just ends up flowing elsewhere.
Credit: REUTERS/Brendan McDermid
The United States is taking more steps to limit Chinese investment and capital raising in America. Many are claiming this marks the start of a fundamental capital divide between the two nations, part of a broader decoupling of their relationship.
Whether or not this proves true is really not about any near-term restrictions. Instead, the real question is: what will become of the massive dollar capital flow from the U.S. to China?
To be sure, Washington seems to be cordoning off some Chinese capital flows to the U.S. Total Chinese direct investment totaled a mere $200 million in the first quarter of 2020, about a tenth of the quarterly average last year. This was partly because of the spread of Covid-19, but also due to the stricter national-security restrictions that the U.S. is placing on Chinese investment.
The U.S. is also moving to restrict capital inflows between the countries on two fronts in Washington. First, Sen. Marco Rubio has led a char
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